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¶ … Goal, (Goldratt and Cox, 1986) plant manager Alex Rogo turned to his former professor, Johah, after being told that the manufacturing plant will shut down if profits don't increase. Johah helps Alex turn the plant around my employing Jonah's Theory and Constraints (TOC) and Throughput Accounting practices to improve operational management. At the heart of TOC, is the notion that the goal of achieving greater profits requires the management of constraints that limit the system from getting more of what it is trying to achieve as will be discussed in this paper.
TOC uses three operational measurements that measure whether operations are working toward the goal (59-60):
Throughput - The rate at which the system generates money through sales.
Inventory - The money that the system has invested in purchasing things which it intends to sell.
Operational expense - The money the system spends in order to turn inventory into throughput.
Jonah states that the goal is not to improve one measurement in isolation. Rather, the goal is to reduce operational expenses and reduce inventories and increase throughput simultaneously.
A bottleneck is defined as any resource whose capacity is equal to or less than the demand placed upon it (137-138)....
The first objective of TOC is to identify the bottleneck that is holdup up everything else, gauge the input into the system by the capacity of the bottleneck, never let the bottleneck be idle, and then elevate the capacity of the bottleneck. Jonah asserts that the capacity of the entire plant is equal to the capacity of its bottlenecks and the only true way to increase throughput is by fixing the bottleneck. Thus, the actual operational expense of the bottleneck is the total expense of the system divided by the number of hours the bottleneck produces (157). Jonah elaborates further,
"Whatever the bottleneck produces in an hour is equivalent to what the plant produces. Every hour lost at a bottleneck is an hour lost in the entire system." (158)
Because of the enormous cost of bottlenecks, increasing the efficiency of bottlenecks is extremely important, even if the efficiency needs to be achieved at the expense of non-bottleneck processes. Further, once one bottleneck is eliminated, inertia should not take hold to prevent the identification and resolution of other bottlenecks.
Next, TOC introduces the idea of adjusting the flow of product to match demand. According to Jonah, capacity should not be balanced with demand (138). Instead, the right approach is to…
Bibliography
Goldratt, E. And Cox, J. (1986). The goal: A process of on-going improvement. New York: North River Press. ISBN:0884271781
The third is "queue time" ("the time the part spends in line for a resource while the resource is busy working on something else ahead of it"); and four is "wait time" (the time any part waits "for another part so they can be assembled together). What Jonah also made clear to Alex is that the old formula ("economical batch quantity" - EBQ) has "a number of flawed assumptions underlying
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